Permanent Portfolios

So far this year, here’s how The Kelly Letter’s permanent portfolios have done:

+2% Dow One
+19% Double The Dow
+28% Maximum Midcap

Looking back a month, it’s a good thing we stayed fully invested. As I wrote then, these permanent portfolios are always fully invested — hence their name — but the latest month is a great example as to why.

Concerns about the market having come too far too fast, and the old adage to “sell in May and go away,” pushed timing instincts to the front last month. The popular media warned of a crash, and my subscribers wanted to know if it was time to sell.

I, too, sounded cautious when I issued my forecast of a rising market in the short term to be followed by a falling market in the medium term. The first part has happened; we’re still waiting to see about the second.

I also wrote that the beauty of the permanent portfolios is that they’re formulaic. You don’t need me to keep them going. All you do is send more money at the end of each month, as we just did this past Thursday. That takes advantage of any dips in price, while leaving the bulk of your money in the market at all times to capture the two-thirds of the time that the market rises.

Just look at the results.

With most investors marveling at the Dow’s impressive 9.7% rise so far this year, we’re sitting on twice that in Double the Dow and almost three times that in Maximum Midcap.

People continue doubting these strategies, but they keep working. With each passing year of beating almost every professional money manager, each dip successfully cleared and recovered from, I grow fonder of these doubling approaches.

The numbers tell the story. If you’d invested separate amounts of $10,000 in the Dow, Double the Dow, and Maximum Midcap at the end of 2002, here’s what you’d have in each today:

$16,235 Dow
$23,290 Double the Dow
$36,614 Maximum Midcap

The same amount invested in Fidelity Contrafund would be worth just $18,205. Even in Janus Contrarian, one of the top-performing mutual funds of the past five years with an annualized return of 18%, your $10k investment would be worth just $27,778. That’s ahead of Double the Dow now, but it probably won’t sustain the lead because it was achieved with human stock-picking, which is historically unreliable. Most fund managers eventually revert to the mean, which is the market, and the doubling strategies beat the market.

Even against leaders like Janus Contrarian in their temporary outperformance stage, Maximum Midcap shines. It’s a full 32% higher than Janus Contrarian.

If you’re waiting for a pullback, keep pooling your money. When a correction comes, you’ll be hard pressed to find a simpler way to play a recovery than one of these permanent portfolios. They combine extreme volatility with assured recovery, and that’s a potent combination.

To see if this simple, effective approach is right for you, click here to start a one-cent, one-month trial of The Kelly Letter.

See you soon!

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